World Bank advises disadvantaged nations to restructure debt

The World Bank recommends debt restructuring for disadvantaged nations. The organisation says that the step is necessary to start investing again.

David Malpass, the president of the World Bank, said before the group’s spring meeting that it would try to find solutions to the growing problems that developing countries are facing.

“Fixing the deadlock in debt restructurings, especially for the world’s poorest countries, will be the main topic of conversation,” Malpass wrote in a blog post on Sunday. This week will be the World Bank Group-IMF Spring Meetings.

The president of the World Bank said that he would talk about the problem with the head of the IMF, Kristalina Georgieva, and the finance ministers of India, Ethiopia, and Jamaica. Malpass wrote, “I’m looking forward to talks about the debt crisis itself and ways to make debt more transparent and sustainable.”

The official also said that he would like to see “serious consideration” of a “debt standstill,” which would mean that formal debt service would be put on hold if the debtor country asked for it at the start of the debt restructuring process.

Moving Markets

Malpass talked about two big problems, saying that the process of reorganising debt hasn’t moved forward much and that there hasn’t been enough talk about what can be done to make debt sustainable.

According to the president of the World Bank, creditors are spending “vital months” talking about things they should have agreed on ahead of time. For example, they are talking about how to handle cut-off dates and the steps in the restructuring process.

“It’s important that we move forward quickly: countries need to get clear, manageable debt loads so that investment, which has slowed to a halt, can start up again,” Malpass said.

The World Bank says that global debt has grown a lot in the past few years. Between 2011 and 2019, public debt in a sample of 65 developing countries rose by an average of 18% of their GDP. In some places, like sub-Saharan Africa, it rose by much more, by an average of 27% of GDP. In 2020, the coronavirus pandemic caused the biggest one-year increase in debt since World War II. However, the World Bank said in a report from 2022 that a huge increase in debt had been going on for a decade.

It showed that nearly 60% of the world’s poorest countries are in debt distress or are at a high risk of being in debt distress. Some middle-income countries are also in danger of falling into debt distress. The World Bank wrote that high inflation, rising interest rates, and slower growth have set the stage for financial crises like the ones that hit a number of developing economies in the early 1980s.


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